Earnings Top Billing 01-14-2011

Cusick's Corner
Stocks are broadly higher on positive earnings and mixed economic news Friday. JP Morgan (JPM) shares are up 2.5 percent and the best gainers in the Dow Jones Industrial Average after the bank reported a quarterly profit of $1.12 per share, which was 13 cents better-than-expected. Intel (INTC) also moved higher on better-than-expected results early Friday, but has since given back the gains and is off 19 cents to $21.10. On the economic front, data released early Friday showed retail sales up .6 percent in December, which was .1 percent less than expected. The Consumer Price Index [CPI] rose .5 percent in December and .1 percent more than expected. However, the latest Industrial Production report showed an increase of .8 percent and twice as much as expected. The University of Michigan Consumer Sentiment Index fell to 72.7 in January, down from 74.5 last month and much worse than the 75.5 that economists were expecting. Overall, the mixed economic data seems to be taking a backseat to earnings. The fourth-quarter earnings reporting season will get in full swing next Tuesday and includes reports from IBM and Apple (AAPL) after market. The Dow Jones Industrial Average has battled back from morning losses and is up 30 points. The tech-heavy NASDAQ gained 9.5. The CBOE Volatility Index (.VIX) has given up another .70 to 15.69. Trading in the options market remains active heading into the three-day Martin Luther King holiday weekend, with 6 million calls and 4 puts traded through 12:45pm ET.

Bullish Flow
A massive three-way spread trades in AMR Friday morning. Shares of the airliner are up 16 cents to $8.72 and, in this spread, the strategist sold 15,000 August 6 puts at 32 cents, bought 7,500 August 8 calls at $1.78 and sold 15,000 August 12 calls at 42 cents. In other words, they sold the August puts to help finance an August 8 – 12 (1X2) call ratio spread. The spread was repeated more than once. Volume in the August 12 calls and August 6 puts is now more than 25,000. These spread traders might be looking for good news when AMR reports earnings in late-January and creating a bullish August 8 – 12 call spread. By selling the August 6 puts to help pay for the spread, they're also stating that they're willing to buy the stock at that price through the August expiration.

Corinthian Colleges (COCO) calls are busy after RBC analysts upgraded the stock to Outpeform from Perform. Shares are up 42 cents to $5.14 and options volume includes 11,000 calls along with 1,850 puts. February 6 calls, which have traded 5,130X, are the most actives. Most of the action has traded on the bid, however, and is not necessarily bullish trading. Some investor s might be closing positions after today's move or perhaps selling calls against a position in COCO shares to generate income.

Bearish Flow
Coinstar (CSTR) is reeling and options are actively traded after the company issued disappointing earnings guidance late-Thursday. Shares are off $14.35 to $42.60 and options volume surged to 11.5X the average daily. 20,000 calls and 19,000 puts traded. January 42 puts, which expire at the end of next week, are the most active. 2,100 traded. July 37.5 and February 40 puts are busy as well, as some investors appear to be taking new positions in anticipation of additional losses for CSTR in the weeks and months ahead.
Career Education (CECO) adds 47 cents to $21.70 and more than 3,000 put options have traded on the education company. The volume represents 4X the norm and compares to call volume of 285 contracts. The action is heavily concentrated in the January 20 puts and included several lots at the 15-cent ask price. Open interest is 1,913 and volume is now more than 2,700. Looks like some investors are opening new bearish positions and possibly looking for weakness in the shares before the January 22 options expiration.

Barrick Gold (ABX) options volume is running 3.5X the average daily, with 97,000 contracts traded and call volume accounting for 79 percent of the volume, according to data from WhatsTrading.com.

AMR options volume is 3.5X the average daily, with 94,000 contracts traded and call volume representing for 62 percent of the activity.

Williams Companies (WMB) options volume is running 3X the average daily, with 89,000 contracts traded and call volume accounting for 99 percent of the activity.
Increasing options activity is also being seen in EMC, Patriot Coal (PCX), and El Paso (EP)

Implied Volatility Mover
The CBOE Volatility Index (.VIX) is back under pressure this week. The market's “fear gauge” is down .68 to 15.71 and has lost 8.3 percent on the week. VIX is easing as the S&P 500 continues to grind higher and as investors now await a flood of earnings releases over the next few weeks. The results could lead to lower levels of volatility for the market averages, as companies that report good earnings move higher and those that disappoint move lower. Gains offset losses and overall market averages see little overall volatility.